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I think people are missing some key points here. This is not a sell. The update is minimal because there is a CMD today. Then you have a FY close in a few days time. There was no update due at this point. Its simply because of the CMD.
New management have cut back on SKU's (this is what has been previously discussed). Why? They are concentrating on the core products and further trying to improve margins here. Spreading yourself thinly for sales alone does NOT equate to profitability. Their strategy is exactly what is needed here.
They have slowly removed all the negatives from the pervious management. RCF now extended. Therefore no issues on that side.
CMD is designed to show the market what the medium term view is. While I agree the near term is very important, if the company is doing say £200m in sales next year (March 2024 onwards) and hits 10% EBITDA margins, you have a business that should be trading nearer 45p. Not down here. Use 8% margins and it is still cheap at these levels.
Say Capex is £5m and £2m in interest and rent. You have a business that is nicely free cash flow positive.
Can't see where the concerns are coming from at this stage.
Personally I think it is (and has always been) in the long grass. The company confirmed it has not even begun any legal proceedings. It is the responsibility of the buyer to do their own DD. How many instances have we seen anything successful come out from threats like this. I personally can't think of any.
They are "looking forward to providing an update on strategy at the CMD". This is what I personally think will start the rerate. Not long to go to see how this plays out.
With the CMD now confirmed, I wanted to share a few personal thoughts:
1) Are they really going to host a CMD without updating on trading? Personally I think if you don't then what are you talking about at the CMD. Therefore I am going to assume they will update the market before or on the day
2) Revb went from single digit EBITDA to guiding the market towards low double digit EBITDA. The trend at that point was clearly higher, going into their peak q4 period
3) 1H 2023 margins improved YoY 8%, standing at ~49.4%
4) EBITDA margins expected to improve FY 2024/2025 (remembering their full year in Feb). Can they get to 8%+ margins with say £215m sales? Ill let people do their own analysis, but using even conservative numbers, assuming the business is even flat in terms of sales, you cant see how this is not trading cheap
5) Net debt improved from 1H to the Nov update. In Nov it stood at £19.7. Fully expecting this to come down further
6) New management team is very experienced in the sector
7) The comp has got to be Warpaint. Revb trades circa 0.5x sales and 8x EBITDA. Warpaint trades on 3x sales and 13.8x EBITDA, yet it has half the revenue.
My personal view is that this could be on the verge of a positive rerate if the trading update is inline / good with management guidance and FY 2024 / 2025 guidance comes in strong.
Worth nothing from what I can see at least, no brokers cover this stock. I think you will get a few brokers covering in this name post the FY / CMD next month. Interest is little in the name today, fully expecting this to change over the next few weeks.
All just my opinions.
Some red flags here that I think investors need to be aware of (just my humble opinion):
This is now a company indirectly controlled by Boohoo. Management will say different, but Boohoo old guard running the show, with Boohoo itself the largest shareholder = Boohoo indirect control. Will the company going forward be run in the best interests of shareholders, or Boohoo. Red Flag.
There is an FCA fine coming. That is a fact. We do not know how much. 1H 2024 is the likely timeframe. This will impact cash. Red Flag
The company has not secured an extension to its RCF. With a new CFO in place in Jan, do we need to be a little concerned? Yes we do. Without the extension there is not enough cash to run this business. Red Flag
Look at the size of the accruals on the BS. Large, very large ~£25m. This was ~£21 in Aug 2022. Red Flag.
The departure of the CFO, like many, I expected. However I would have hoped it would have been after FY (which is in Feb). Why now? The history of this company is not great. I personally do not feel comfortable that the only 'independent' senior is going. Elizabeth was not ex boohoo and as shareholders that is what was needed. Red Flag
Too much control by one party is not a good thing. EVER.
No opinions / speculation , but lets just look at the time line of events recently ....
MM visits the Middle East on a business trip - we know (from MM) that he does not like doing trips and being away from the family. Therefore for me, the significance of this trip is high.
On return, MM shortly after relinquishes his golden share. Why? It was going in Sept and he first suggested this around Oct 2021. However right after the trip the RNS is dropped.
Speculation then mounts with regards to MM selling his prop co business. This speculation is still ongoing and it to my knowledge has so far not been rebuffed by MM. Should it play out, MM raises north of £200m to my understanding.
The buying post the ME trip began. Steadily rising daily. Retail investors cannot maintain this type of momentum on a daily basis.
Something does feel like its brewing (ME buying / MBO play / unit spin out with Ingenuity going to MM etc).
If its not, then remember you have a business where earnings seemed to have troughed. Whey is at multiyear lows! Costs have / are being cut.
Ian Mc has been nothing but a yes man to his mates. It is embarrassing to read his posts. You need strong board members in a company and THG shareholders have him. Look back for as long as you like and you will not find instances where he has challenged MM on ANYTHING.
The Apollo deal has come and gone. The business needs to now deliver on numbers. That is the only way from here it can defend itself. There is clear value in this business if the CAPEX burn on Ingenuity was not as ridiculously high as it is. With the likes of Ian Mc on the board, who is ever going to step up and challenge the board.
The AGM is not far away......TIME for CHANGE. As retail investors, collectively there is a voice. As shareholders we know what needs to be done.